"US Treasury Supply to Gradually Decrease from Next Year... Limiting Upward Pressure on Interest Rates"

[Asia Economy Reporter Kim Eunbyeol] Although U.S. Treasury issuance has increased, causing interest rates to rise (prices to fall), it is expected that the issuance will gradually decrease starting next year, limiting the upward pressure on interest rates.

According to the "Analysis of U.S. Treasury Supply Conditions and Implications" report by the International Finance Center on the 15th, the center stated, "Considering the consensus that U.S. Treasury supply will gradually shrink across medium- to long-term maturities starting next year, the upward pressure on interest rates due to supply burdens will be limited."

They added, "While the rise in Treasury yields this year was largely influenced by fundamental improvements and tapering expectations, the increase in net supply of medium- to long-term bonds also played a major role."

The International Finance Center explained that one reason why U.S. Treasury yields are unlikely to rise further despite recent economic improvements is that while supply is expected to decrease, demand for Treasuries is increasing.

The reasons estimated for the strong demand for U.S. Treasuries include ▲excess savings, ▲rising pension fund funding ratios (increasing demand for long-term bonds), ▲a reversal of selling pressure (bearish views) already reflected in the market, and ▲increased hedging demand for Treasuries by U.S. financial institutions.

Researchers Joo Hyewon and Kim Yoonkyung forecast, "As COVID-19 vaccinations and economic recovery progress, government spending is expected to decrease, and the fiscal deficit expansion effect of the infrastructure bill will also be spread over several years, easing the burden of Treasury supply."

They analyzed, "This suggests that Treasury supply by the U.S. Treasury will begin to gradually decrease as early as the end of this year or at the latest from next year, meaning the likelihood of interest rate increases caused by poor auction results will decline."

The net issuance of U.S. Treasuries reached a record high of $4.3 trillion last year (including $2.5 trillion in short-term T-bills), and this year, net issuance of medium- to long-term Treasuries has been increasing.

This content was produced with the assistance of AI translation services.